The amended Law of Ukraine On Banks and Banking has prohibited banks from performing risky activities posing a threat to the interests of depositors or other bank’s creditors and authorized the National Bank of Ukraine to determine in its regulations a list of attributes, which are used as grounds for concluding that a bank is involved in risky activities.  To ensure implementation of the aforementioned legal provisions, on November 10, 2015, the  Board of the National Bank of Ukraine issued Resolution No.778 On Amendments to Some Regulations of the National Bank of Ukraine.

“This Resolution is intended to clamp down on corrupt schemes and fraudulent activities. Among the novelties of the regulatory document is that it obliges a bank to prove that its customers’ activities are free from attributes that fit the description of risky activities. In addition, the Resolution has tightened sanctions for the failure to comply with the requirements,” said Director of the Financial Monitoring Department Ihor Bereza.

The Resolution has established a list of attributes that fit description of risky activities, including in the area of prevention and counteraction to legalization (money laundering) of the proceeds from crime or terrorist financing, as well as financing of the proliferation of weapons of mass destruction.

These attributers include the following:

• the execution by a bank (directly or indirectly) of transactions that have no apparent economic feasibility (sense); 
• indirect issuance of loans to related parties;
• the failure to include in the list of bank’s related parties persons or entities that fit the description of banks’ related parties and with which a bank enters into transactions directly or indirectly; 
• the execution of transactions in securities with signs of fictitious nature;
• the use by the bank of financial instruments that artificially improve the appearance of the bank’s financials  and  lead  to distortions in the financial statements of the bank;
• early repayment of time deposits attracted from the bank's related parties;
• one-time flagrant violation or regular violation by the bank of the laws in the area of cash circulation.

The attributes that fit the description of risky activities in the area of financial monitoring shall, inter-alia, include the following:

• the execution by the bank’s clients of financial operations that have no apparent economic feasibility (sense);
• the bank’s involvement (rendering of services by the bank) in financial operations, the nature or consequences thereof give grounds to believe that their aim is to take capital out of the country, legalize the proceeds from crime, and  evade taxes (particularly financial operations related to the withdrawal of cash, funds transfers abroad, and the purchase/sale of securities, etc.);
• the execution by the bank or bank’s clients of financial operations, the nature or consequences thereof suggest that the main purpose behind such transactions is to evade the fulfilment of obligations and the restrictions prescribed by the banking, foreign   exchange  and financial monitoring laws;
• the failure by the bank to take sufficient  AML/CTF (anti-money laundering and counter terrorist financing) measures;
• the failure by the bank to reject its clients’ recurrent financial transactions whose nature gives grounds to believe that their aim is to use the services rendered by the bank for legalization (money laundering) of the proceeds from crime or terrorist financing, as well as financing of the proliferation of weapons of mass destruction or the commission of any other crime;
• the execution by the bank or bank’s clients of financial operations using the documents that have been lost, stolen or  forged; 
• the execution of a financial transaction by the client being a public official, a person related to a public official in respect of whom the bank has no documented information (documented proof of funds) regarding the funding sources (assets, claims on these assets) that is sufficient to prove his/her financial ability to perform or initiate the respective financial transaction;
• the submission by the bank of unreliable information/documents/ conclusions to the National Bank. 

In addition, the Resolution has set out the enforcement measures to be taken against those banks that are found to be involved in risky activities.

“The National Bank has adopted a zero tolerance policy towards fraudulent actions and banks’ involvement in corrupt schemes,” said Director of the Financial Monitoring Department Ihor Bereza. “If irregularities occur, in this case both the entities (persons) that have performed fraudulent activities and financial institutions that have allowed irregularities to be overlooked will face punishment. We have expanded a list of sanctions that could be taken - from the imposition of restrictions on transactions to penalties amounting to 1% of the authorized capital,” said Ihor Bereza.